Milk Prices, Demand from Dairies Will be Key to 2013 Hay Market

Although alfalfa supplies will be tight in Western states, prices may soften, says hay market expert Seth Hoyt.

2013 alfalfa hay prices hinge on the direction of milk prices and demand from Western dairies, just as last year, well-known hay market analyst Seth Hoyt told a packed room today at World Ag Expo in Tulare, Calif.

Speaking at the annual farm and equipment show underway this week, Hoyt laid out an uncertain scenario that will take its cue from the dairy market’s performance over the next three to four months.

While he predicts hay supplies will be tight, the real indicator of price direction lies with the financial health of dairies and whether they’ll ramp up alfalfa levels in rations once again.

"There are indications that things will get better for dairies, but that hasn’t happened yet," Hoyt said. "California lost about 100 dairies in 2012, and more are going out."

Far and away the biggest customer of Western alfalfa, dairies have struggled with record-high feed costs. As they cut back on alfalfa in their dairy-cow rations last year, the decrease in demand pushed hay prices lower.

Despite a recent easing in the cost of production among California dairies, milk prices have fallen, so those operations remain stressed, said Hoyt.

Because old-crop hay supplies will be tight, Hoyt expects early-season, top quality hay in Southern California to find good demand this spring. He forecast a range of $220 to $230 per ton for top hay in the Imperial Valley market.

Prices for early Supreme alfalfa hay in Central California could slip to $240-$250 per ton. That compares to $320-$330 in January 2012, and $285-$305 last month. Hoyt also estimates early-season prices will reach $200-$200 across the Western states.

Hay stocks are down and there will be fewer acres of alfalfa in California, he added. California’s acreage will be down 3-5% from 2012. But Roundup Ready acreage in California will increase, accounting for at least 50% of the state’s alfalfa acreage this year.

California’s irrigation water supply will also be a big issue in the hay market, Hoyt said. The state has seen limited rainfall this year.

Hay exports should be strong again, particularly to China and the United Arab Emirates (UAE). While the UAE remains the biggest customer for U.S. hay, China is set to be "a big player," said Hoyt. China, with its 1.3 billion people, wants to double its milk production in the next five years. The Asian giant also is home to some 15 million dairy cows, compared the 9 million or so in the U.S.

"That’s a lot of cows to feed," he said.

Hoyt also expects more alfalfa exports this year to Saudi Arabia, a relatively new overseas customer.

Could California’s current dairy struggles result in a replay of 2012 for the hay market? Financially struggling dairies cut back on alfalfa hay purchases last year, pressuring prices lower. Even so, Hoyt said, alfalfa prices didn’t drop as much as might have been expected. One reason was that hay was more competitively priced than corn for dairy rations.

"Rolled corn got so high, dairymen started using more hay," he said.

Last September, the price spread between rolled corn and Supreme alfalfa hay delivered to dairies in the Hanford-Tulare area increased to an unprecedented $75, Hoyt said. As a result, California dairies increased their hay consumption to 9.5 lb. per cow per day in the last months of 2012, compared to 8.9 lb. earlier in the year. This month, the spread has narrowed to the $30-$34 range. Rolled corn delivered to dairies in the Hanford-Tulare area currently is priced at about $317 per ton.

If milk prices increase in the coming months, "all bets are off, because there won’t be a big supply of alfalfa hay and dairymen will be more financially strong," Hoyt said. That means they’ll be back in the market for increased alfalfa deliveries, and prices could climb.